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HMRC internal manual

Senior Accounting Officer Guidance

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HM Revenue & Customs
Updated
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Senior Accounting Officer main Duty: appropriate tax accounting arrangements: tax liabilities calculated accurately in all material aspects

Appropriate tax accounting arrangements enable the company’s relevant liabilities to be calculated accurately in all material respects.

Where a company is a member of a group, the concept of ‘accurately in all material respects’ must be considered in relation to the company, not the group.

The Senior Accounting Officer (SAO) provisions do not impose a higher standard of accuracy than already exist for preparing returns. Neither do they bring accountancy or audit ‘materiality’ into the legislation.

For the purpose of the SAO legislation we regard ‘accurately in all material respects’ as what a particular company in a particular set of circumstances might reasonably be expected to get right.

In considering whether or not the accounting arrangements enable the company’s relevant liabilities to be calculated accurately in all material respects (that is whether or not appropriate tax accounting arrangements have been established and maintained) the SAO should consider:

  • the regularity of the transaction involved - if something is a routine part of a company’s business we would expect the systems to be able to process these transactions correctly, recognising that occasional, unforeseeable errors will inevitably occur
  • the likelihood of the transaction being accounted for incorrectly - if there is a high likelihood of a transaction going wrong then we would expect arrangements to have been put in place to minimise the chance of this happening
  • the impact of a transaction or group of transactions being processed incorrectly - if the tax impact is significant in the context of the company’s overall liability for that tax regime then we would expect arrangements to have been put in place to process the transaction(s) correctly, recognising that occasional, unforeseeable errors will inevitably occur
  • where there is a combination of high likelihood and high impact we would expect the arrangements to process the relevant transaction(s) correctly with unforeseeable errors occurring only occasionally.

We do not normally regard a weakness in the accounting arrangements for a particular financial year as a failure to comply with the SAO provisions where, on reviewing information from the SAO, we consider the risks and resultant errors to have been immaterial.

For example, we normally regard isolated individual errors in multiple, low value transactions as immaterial in considering whether or not appropriate tax accounting arrangements were in place for a financial year. However if, in the knowledge of the weakness in the systems that have resulted in these errors, the SAO does not take steps to correct those errors then for future financial years those errors may well be regarded as material.

Conversely though, an error in the treatment of a high value, one off transaction may well fail the provision.

We do not automatically treat amendments to returns, voluntary disclosures, and the like as indicating inappropriate tax accounting arrangements. Indeed the fact that a company identifies errors may point to the fact that good monitoring systems are in place, as part of the ‘arrangements’. Customer Relationship Managers (CRMs) or Mid-sized Business Caseworkers should consider the facts behind the reporting of these scenarios in order to decide whether they arise from a main duty failure.

FA09/SCH46/PARA14